Contrary to public perception, trusts aren’t only for the wealthy. Indeed, anyone who owns property in Vermont and whose estate is worth more than $10,000 may want to set up a living trust to avoid probate. The court process can take six to 18 months if no litigation is involved. This article will help you decide whether a Vermont living trust makes sense for you. It will also tell you everything you want to know about the legal document. For large estates, you’ll probably also want a financial advisor’s help. SmartAsset’s free matching tool can help you find an advisor who serves your area.
How to Create a Living Trust in Vermont
Setting up a living trust, sometimes called a family trust, is largely the same regardless of where you live in the U.S. Here are the basic six steps:
- Determine what will go into the trust: Some assets can’t, such as pensions, 401(k) plans and IRAs. Other things like bank and brokerage accounts can but don’t need to, as long as you designate your beneficiaries on the accounts or policies so that they are payable or transferred on death. Most likely, it’s your home and other real property that you want to protect with a living trust. (But as long as you are setting up the trust, you may decide to put everything you can in it.)
- Select the appropriate type of living trust: You probably want it to be revocable (as opposed to irrevocable), so that you maintain control of the assets and have the flexibility to modify or cancel the trust. If you are married (and all of your children are with this spouse), you may want to bind each other to a plan by creating a joint living trust. If you’re in a later marriage with children from previous relationships, you probably want to go with two single trusts, which offer more flexibility.
- Name the trustee who will manage the trust: With revocable trusts, it can be you, or in the case of a joint trust, you and your spouse can be co-trustees. If you appoint yourself, you’ll also need to name a successor trustee for when you die. With irrevocable trusts, the trustee must be someone other than you.
- Create a trust agreement: To make sure you do this correctly, you should hire an attorney. But if you want to do this cheaply, you can use an online program.
- Sign the trust document: You must do this before a notary public.
- Transfer assets to the trust: This can be done by retitling them or deeding them to the trust. This is called funding the trust. In Vermont, you can wait until death to make the transfers, which leaves your trust “dry” or “unfunded” until then. For things that can’t be titled, like jewelry or antiques, it’s enough just to list them in the trust agreement. Again, you can do the paperwork yourself, though using a lawyer will ensure that your transfers are done properly.
What Is a Living Trust?
A living trust is a legal document that assigns where property is to go when the owner – or trust grantor – dies. Unlike a will, a living trust is also an entity that holds the property while the grantor is alive. The most common goal of a living trust is to skip probate, a court process that takes time and costs money.
The person who manages the trust is the trustee. As stated earlier, the trustee can be the grantor if it’s a revocable trust – or it can be a grown child, other relative, lawyer, anyone you trust. When the grantor dies, the trustee or successor trustee will manage and distribute assets as the grantor instructed.
As explained earlier, there are revocable and irrevocable living trusts. The former is commonly preferred because the grantor does not give up ownership rights. On the other hand, grantors of irrevocable trusts do give up all claim to control and ownership – and so are off the hook for taxes.
How Much Does It Cost to Create a Living Trust in Vermont?
The biggest expense is the lawyer’s fee, which can be based on an hourly or project basis. Alternately, you could create the trust yourself, though it’s not advisable. Some online forms are free while others run a few hundred dollars.
The other expenses are the costs associated with retitling assets. These can include transfer taxes, deed preparation fees and county recording fees.
Why Get a Living Trust in Vermont?
The main reason for creating a living trust in Vermont – or anywhere – is to avoid probate, the court process for enacting a will. Though the state has not adopted the Uniform Probate Code, probate in Vermont is not considered excessively long or expensive. If no litigation is involved, it generally takes six to 18 months, according to some estimates. (Creditors must be given at least four months to submit any claims on the estate.)
Still, bank accounts are frozen during probate, which can cause problems if heirs are unable to cover bills related to the estate. And if litigation is involved – maybe someone contests the will – lawyer and court fees will add up.
A living trust, then, would enable your heirs to avoid these delays and costs (which can be even more if you own property in other states). Another benefit of trusts is that you can use them to provide for minors and for heirs with special needs. Trusts also allow for the distribution of assets to be postponed till, say, grandchildren get married (with wills, this happens once probate closes).
Who Should Get a Living Trust in Vermont?
You don’t need a living trust if your estate is worth less than $45,000 and you don’t own any real estate. If that’s your situation, your heirs can follow what’s called “small estate procedures,” which do not involve probate.
You may also not need a living trust if your estate is free of debt and there will be no disputes. As noted earlier, probate in Vermont can be relatively simple and inexpensive.
People who may want to set up a living trust are owners of property in multiple states. Or they want their beneficiaries to receive their inheritance immediately. You may also want one if it’s likely your will to be contested (perhaps you are leaving more to one child than another). Other reasons for getting a living trust include, as noted earlier, wanting to provide for someone with special needs or wanting to postpone disbursement of your assets until, say, a child reaches a certain age.
As for irrevocable trusts, these only make sense for very wealthy people looking to minimize estate taxes (which kick in at the state level at $5 million for individuals and at the federal level at $12.06 million for 2022 or $12.92 million for 2023).
Living Trusts vs. Wills
Since it’s hard to get absolutely everything you own into a trust, wills are highly recommended. With a will, you can also leave instructions such as:
- Naming an executor (as opposed to having the court name someone who wouldn’t be your top choice)
- Stating your preference for guardians of children who are minors
- Forgiving loans you’ve made, say, to a sibling
This chart shows what you can and can’t do through living trusts and wills:
Living Trusts vs. Wills
|Names a property beneficiary||Yes||Yes|
|Allows revisions to be made||Depends on type||Yes|
|Avoids probate court||Yes||No|
|Requires a notary||Yes||No|
|Names guardians for children||No||Yes|
|Names an executor||No||Yes|
Living Trusts and Taxes in Vermont
A living trust will not reduce Vermont’s estate tax, which kicks in for estates valued at $5 million and more. It may cut your federal estate tax liability if your estate is in the eight figures. Again, the federal exemption is $12.06 million for individuals in 2022 and $12.92 million in 2023, with each figure being doubled for couples. But if you’re considering a living trust to lower your estate tax, you should consult an attorney about your options.
Vermont has no inheritance tax.
The primary reason for getting a living trust in Vermont is that your estate is worth more than $10,000 and want your beneficiaries to receive it straight away. A living trust may also make sense if you want to provide for someone with special needs or if you want to divvy up your estate in an unequal way. You likely don’t need a living trust if your heirs can wait out probate. In Vermont, the process isn’t excessively long, though the state has not adopted the Uniform Probate Code.
Estate Planning Tips
- There’s a reason professionals specialize in estate planning: It can be complicated. A financial advisor can help you with tax planning and wealth transfers as well as investing assets to provide income. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Designate your beneficiaries. As tedious as filling out the forms and keeping them updated can be, it is well worth the trouble. Life insurance policies, retirement accounts and brokerage accounts can be transferred or payable on death if you name your beneficiaries.
Photo Credit: © iStock/Artem Peretiatko, © iStock/DenisTangneyJr